During the moment of crisis, the people of Hong Kong would re-examine their structural problems; high land prices and real estate policies are among such structural problems. For Hongkongers, Hong Kong's past economic miracles have four major institutional foundations, namely British governance, simple low taxation, free trade port policy, and high land price policy. In the past century, the "high land price" is the pillar of the other three foundations. It is precisely high-priced land sales that brings sufficient income to the Government Treasury, Hong Kong can adopt a low tax rate internally and exempt from customs duties, giving it conditions to maintain good governance.
The high land price policy has never been something expressly stated; it has never been written into any policy document. The previous Hong Kong government has even denied that such a "policy" ever existed. Despite this, maintaining high land prices has in fact become the long-term policy direction of Hong Kong. Hong Kong's high land price policy can be traced back to the early days of the colony. The British Hong Kong Government has colonized Hong Kong since 1841. It was necessary for the British to develop this small, backwater island into the Far East Free Trade Port in order to serve the interests of the British Empire. To achieve the goal, it would be essential to provide adequate infrastructure and efficient governance, and for this end there must be sufficient financial resources. However, in order to attract trade to the region, heavy taxes cannot be imposed. Under such condition, high-priced land sales become a viable way. Of course, the general trend of the overall economic development in Asia, and the unique Chinese sentiment on land property have to be considered as well; all these eventually pushed Hong Kong's "high land price policy" to the extreme, to the extent of being unparalleled in the world.
The government of British Hong Kong first auctioned land in 1841, covering more than 400 sites from Causeway Bay in the east and Sheung Wan in the west. In the 1984 the Sino-British Joint Declaration, it is written that, "the total amount of new land to be granted… shall be limited to 50 hectares a year". With the return of Hong Kong to China, there is a deep consensus on the high land prices inside and outside the Hong Kong government; this even become its "core value", and is seen as natural as maintaining the free market and defending the spirit of the legal system. After the reunification of Hong Kong, the first Chief Executive Tung Chee-hwa had proposed to build 85,000 flats a year, which was later abandoned due to the controversies it caused. In recent years, mainland enterprises and capital have entered Hong Kong in large numbers, and become a new force to continue Hong Kong's local and international capital. They continue to push up property and land prices in Hong Kong from both capital supply and demand.
In recent years, high property prices caused by high land prices have become increasingly out of control, even evolves into an independent trend unable to be controlled by the Hong Kong SAR Government. The Hong Kong Economic Journal likens the impact of high land prices on Hong Kong's economy to "a dog that allows itself to be dictated by its tail", implying that the high property price is shaking the social stability and economic foundation of Hong Kong. The Annual Demographia International Housing Affordability Survey reveals that Hong Kong's property has become the most unaffordable in the world for eight consecutive years. The increase in social problems caused by high land prices and high property prices has become the background for the Hong Kong Government's recent regulation of real estate policies.
The status and economic characteristics of Hong Kong are also changing. Hong Kong has long been more than just a free trade port, but has also become an international financial and wealth management center. The Government's treasury income has also become increasingly diversified. The proportion of land sales revenue to the annual income of the Hong Kong Government has dropped from 60% in the 1990s to about 20% in the fiscal year of 2018/2019. Though the income from property stamp duty of about HK$50 billion is included, the proportion of total revenue is still less than 30%. At the same time, the Hong Kong Treasury has more than HK$1.1 trillion of fiscal reserve.
The Hong Kong SAR Government has adopted a series of policies in face of high property prices, sometimes known as the "Six Measures of Ngor" after Chief Executive Carrie Lam Cheng Yuet-ngor. The policies might seem to be mind-boggling, but in the Hong Kong market, measures like vacancy tax on empty new flats and stricter conditions on developers' sales of uncompleted flats are not the main focus; the actual essence is making flats under the subsidized Home Ownership Scheme (HOS) to be nearly 50% cheaper than private flats, instead of the current 30% discount, and reallocating 9 government sites originally earmarked for private housing to build 10,600 public flats (including HOS flats), and changing the ratio of planned public housing flats to private ones from the current 6:4 to 7:3 in the future, even boldly asserting reclaiming land. The combination of these measures is an extremely important signal to Hong Kong; it symbolizes that the Hong Kong Government is willing to sacrifice land sales revenue, and at the same time, by increasing public housing, bypassing developers and directly benefitting the middle and lower classes to ease the people's hardship.
These policy changes do not mean that the Hong Kong Government can completely abandon the land sales revenue, but the importance of land sales revenue to the Hong Kong Government will be greatly reduced in the future; policy changes also do not signify that Hong Kong property prices will be affected. However, it appears that Hong Kong's future policies will not be constrained by the maintenance of property prices. This is a major change for Hong Kong, which once relied heavily on the property market to maintain the government revenue.
Final Analysis Conclusion:
With the changes in Hong Kong's urban positioning and economy, the real estate industry's support for Hong Kong's economy is decreasing; this means that Hong Kong's future policies will become less and less constrained by the property market.
